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Oil or Alaskans: Who does Sean Parnell represent?

There were no real surprises in the reports of strong earnings by oil companies during the first half of 2011. According ConocoPhilips they were “driven by better commodity prices and refining margins.” By better they mean higher prices to charge us. It’s the capitalist way to make a lot of money. And according to the non partisan Government Accounting Office, they’ve also taken advantage of government ineptitude to increase their profits.

In the biennial High-Risk Series report issued last February, the GAO listed the U.S. Department of Interior’s management of federal oil and gas resources as being highly vulnerable to fraud, waste, abuse, or mismanagement. GAO stated that the department “does not have reasonable assurance that it is collecting its share of billions of dollars of revenue from oil and gas produced on federal lands.” It estimated that in recent years the federal government may have lost between $21 billion and $53 billion because it got saddled with a royalty relief provision from the Clinton era when oil and gas prices and industry profits were much lower than they are today.

It’s not realistic to expect the oil companies to return any of their lucrative windfall to the national treasury. But it should be clear that industry whining about taxes and royalties is really just a marketing tactic intended to pit the public against its own government.

There’s more though. GAO also concluded that the Interior Department can’t reasonably determine if oil and gas producers are accurately measuring production. They stated that the government “relied too heavily on company-reported oil and gas production figures” and found “numerous instances in which oil and gas production data were missing or sales data appeared to be erroneous.”

These problems aren’t exclusive to the collection of federal taxes. In January 2011, the Alaska Department of Revenue (DOR) submitted a status report to the Legislature about the impact of the state’s restructured oil and gas production tax. Among its major findings is that the department’s tax reporting and compliance efforts have been hampered “by the lack of a centralized database to house and manage the large volumes of oil and gas data it receives.” Among the monthly data reported to the state is “information from each active oil and gas company regarding the amount of oil and gas produced.”

It seems our Department of Revenue is also relying heavily, if not entirely, on industry figures to determine the taxes the oil companies owe Alaskans. How accurate is the data they get? How would DOR fare if subjected to a non partisan audit by GAO?

Just as the GAO warns against overreliance on industry supplied production data, our government shouldn’t be reacting to oil company complaints about taxes either. But that’s exactly what Gov. Sean Parnell has done by proposing to lower the tax rates in ACES. Charging ahead under the mantra “the status quo is unacceptable,” he’s catering to big oil even though the DOR status report states that under ACES capital expenditures, exploration and job creation increased every year except 2010.

The DOR examined both of the new oil tax regimes — Frank Murkowski’s briefly-lived Petroleum Profits Tax (PPT) and the newer Alaska’s Clear and Equitable Share (ACES) championed by Sarah Palin. It states the obvious. ACES generated more tax revenue because of its “higher base and progressivity tax rates.” And it all but eliminated the transition investment expenditure credit that allowed producers to recover investments made before PPT became law. It’s a credit that probably gave the industry a sweet tax loophole. In fact, considering how much influence they had in crafting the PPT, they may have put it there for that very reason.

Obviously the oil companies don’t like paying more taxes under ACES. But that isn’t a reason to restructure it as Parnell proposes, especially when his own department states, “the economic activity of the past three years may not have been the best benchmark by which to judge the impact of a tax system” and “drawing any conclusion about their effect on Alaska’s investment climate is difficult.” Add in the substantial oil industry profits earned so far this year and one has to wonder whose interest our governor is representing.